Steering Hooks

Over the years I’ve had the privilege of being the “fly on the wall,” hearing both the perspective of broker/dealers seeking qualified professionals and Advisors shopping for a suitable new firm. Not only do I deal with over 70 independent broker/dealers and their recruiters and management, I get to hear prospective Advisors’ uninhibited feedback on why they choose one broker/dealer over another.

As a result, I’ve been able to put together this sampling of some of the many so-called “steering hooks” recruiters and management use to win over Advisors who’ve come knocking on their doors.

Herd Dynamics. Broker/Dealer to Advisor Prospect: “We’ve brought over many Advisors from your current firm and they’ve worked out well, enjoying increased production and much greater professional satisfaction. We’d be happy to give you some of them as a reference.”

That message–from a Broker/Dealer with a history of recruiting reps from the Advisor’s current firm–is a powerful draw to Advisors. It can be a great comfort to prospective recruits knowing that others from their firm have chosen the same firm, and have found it to be a big improvement. I refer to this phenomenon as “Herd Dynamics.” Our advice? Always take advantage of any herd dynamics your firm enjoys.

“We’ll Help You Grow”. Many firms have become more aggressive at plugging Advisors into marketing programs designed to help them quickly add hundreds of thousands of gross dealer concessions to their bottom lines. Advisors grossing in the $100,000-$300,000 range are hungry for any marketing assistance that will help them grow their books.

On the one hand, while larger producers may be less interested in this because they stay busy and continue to grow through referrals, for those who want and need help growing their books, any marketing support your firm makes available will be appreciated. Talk up your firm’s marketing program(s) as much as you can in your recruiting activities.

For Managers looking to grow their groups, any sort of recruiting assistance is very appealing. Some firms succeed in that by offering producer groups access not only to their internal recruiters and lead flow, but to outside recruiters like me, with the broker/dealer picking up the tab for any recruits brought over. This is an effective tool for attracting large producer groups to your firm.

“We’re Large and We Have Deep Pockets.” For firms with over 700 reps and a parent company’s financial backing, or large firms with substantial financials on their own without a parent, those deep pockets are a potent vaccine against the likelihood of the firm going under. Situations such as Brookstreet Securities’ recent collapse have reinforced Advisor concerns over a firm’s business stability in worst-case scenarios. Advisors who have been at firm with financial problems will often seek out firms with deeper pockets. On the flip side, some firms will take this to extremes by claiming that only firms with deep pockets will survive in the long run. That’s simply not true.

“We Have the Sophistication Your Clients Need.” This message can mean many things, but it usually refers to providing the things accredited, high-end investors need and have come to expect. For example, Alternative Investments, REITs, Investment Banking, Private Equity, Structured Products and Hedge Funds are products catering to sophisticated clients, as do advance planning, cutting-edge technology and impressive websites. A broad range of separate account managers, third-party managers, and cost-effective wrap platforms round out the picture.

If prospective Advisors have a number of accredited investors or want to grow into this area, this is the medicine they need. In addition, the sophistication of a firm’s back-office staff is a frequent topic among Advisors on the move. This may not be much of an issue among firms in major metropolitan areas, but for firms in rural areas, it can be a huge stumbling block. We’ve found that rural firms try to overcome this by claiming that their lower overhead allows them to offer more bells and whistles and/or payouts. Typically, however, overcoming the perception of rural firms’ problem with lower-quality staff with little industry experience and difficulty attracting management is an ongoing battle. We’ve also found that the larger the rural firm is, the more difficult overcoming those staffing issues become.

“With Us, You’ll Be A Round Peg in A Round Hole!” Advisors want to feel they fit in. For example, Reps who focus on fee-based advisory will feel out of place in firms where fellow reps are doing primarily transactional selling. The same goes for Advisors active with stocks and bonds in firms doing mostly package products.

In January, for instance, I had a case where I was reading a broker/dealer’s product mix to an Advisor who had been iffy on the firm up to that point. While I recited the broker/dealer’s product mix, the Advisor stopped me, saying, “That’s almost exactly my clients’ product mix!” He joined the firm the next day. Being likeminded with a firm’s products and investing philosophies gives Advisors a comfortable feeling most find very appealing.

“You’ll Net More With Us.” This tends to be a larger concern for Advisors doing $50,000 to $200,000 in production than it is for larger producers, since this is often about static costs such as Errors and Omission Insurance or monthly fees. Ultimately, while you get what you pay for, some firms make an art out of profit centers that come with high expenses but offer little in return. If that’s the case with your firm, count on your Advisors shopping around to see if your payout and expenses are out of line. Larger producers focus on netting more through better technology that saves them time and lower fees on assets, such as administrative fees on wrap accounts. Netting more through payout seems to have universal appeal, but it isn’t the reason Advisors change firms; it is typically just one of many factors under consideration.

“We Have Rep-Friendly Compliance.” This may seem to be an oxymoron, but it refers to communicating the things regulators require, but not much more. The alternative is broker/dealers who are 60% company policy and 40% regulatory requirements. Couple this with long waits for seminars and ad approvals, French law (guilty until proven innocent) when you get customer complaints and compliance that has an “our way or the highway” mentality, and you can count on having Advisors whose frustration soon comes to a boil.

Life is a balancing act, and Compliance can often go against the grain. Typically, reps only want Compliance to keep them out of trouble and inform them of changes. The problem often lies as much in how such things are communicated as it does in what is being communicated. The point is, rep-friendly Compliance communicates these messages in a patient, respectful manner.

“Being Smaller Enables Us to Be Flexible with High-Touch Relationships.” Smaller firms, those with 150 Advisors or less, and to a lesser extent, medium-sized firms (150-500 Advisors) have the ability to mold to their Advisors’ specific needs vs. having cookie-cutter platforms. For Advisors who like having strong relationships with their firm’s back-office and management, smaller firms have a unique appeal. Advisors who have been at larger firms often find the personal attention and quick response times of smaller firms refreshing. Or as one rep puts it: “They make decisions the way entrepreneurs do, not like bureaucrats.” That’s a comment I hear a lot from satisfied brokers who’ve gone from wirehouses to smaller independent firms.

Slamming the Competition. Here’s something that stirs mixed emotions in me because I’ve been guilty of doing it in the past, but have cut way back on it now, and urge broker/dealers to follow suit. On the one hand, you want to warn Advisors if they’re considering firms with chronic problems, but you also want to avoid blowing fleeting rumors all out of proportion.

Some firms routinely bad-mouth the competition, while others will consistently take the high road by only discussing themselves. I’ll frequently ask recruiters for more details when they make derogatory comments about other firms. The conversations usually go something like this:

Recruiter: What other firm is the rep considering?

Me: Such and such firm.

Recruiter: Oh, that firm is having serious problems.

Me: Oh really, like what?

Recruiter: Well, I just heard they had problems.

Me: What kind of problems?

Recruiter: Compliance I think…

They start off quite sure of themselves but their stories usually fall apart after a bit of probing. The other problem with this approach is that prospective reps can be turned off by recruiters bad mouthing other firms. Unless you can substantiate what you’re saying with facts, not hearsay, it’s best to take the high road and stick to talking up your own firm.

“We Don’t Just Take Anyone!” This is a “Country Club” approach in which the harder it is to get into your firm the more prospective Advisors will want in! People like being part of something exclusive: you know, members only! Requirements such as high minimum production standards, clean compliance history, appropriate product mixes and even likeability are the litmus tests for firms using this steering technique.

“Our Transition Department is Par Excellence.” Firms that most aggressively tout their Transition Departments’ approach to moving an Advisor’s book of business have a winning edge over those who don’t (or who can’t!). For Advisors, the thought of moving a book of business can be traumatic. Firms can reduce these fears and uncertainties by addressing the following concerns:

How long will I be swamped in transfer paperwork?

What kind of help will you provide?

How long will it take to transfer my accounts?

What kind of client retention can I expect?

How should I explain to my clients why I’m moving?

Several months ago I had a case where the Advisor’s decision to relocate had been narrowed down to two firms. The rep went with the smaller, lesser known firm. When I asked why, this was his response:

“The larger firm has been around longer and has a more polished image, but the smaller firm is going to send four staff people down to my office for 4 to 5 days to do my transfer paperwork and train my staff. The other firm would leave the paperwork up to me, and provided no initial training for my staff.” In this case, transition help made all the difference, and was the rep’s tipping point.

“We’ll Leave You Alone.” I’m bombarded daily by reps telling me they want a firm that will leave them alone. However, this is often what they mean by being “left alone”

Clearly they don’t literally mean leave them alone, but rather keep their lives as simple as possible and respect their independence.

“Our Geography Is To Your Advantage.” Having a firm geographically close can be a comfort to Advisors. Being able to drop by with questions, meeting management for lunch now and then, meeting with Operations about business processing or having a short drive for annual Compliance meetings have all sorts of positive connotations. Even being in the same time zone can bring benefits, as West Coast reps with East Coast broker/dealers will attest: “I call them for help at 3:00 in the afternoon, and they’re already closed for the day. It’s very frustrating!” If you have a geographic advantage with prospective reps, be sure to leverage it.

Steering Hooks Are Part of a Recruiter’s Tool Chest. The key to this is which steering tools your firm is using now and which ones you want to grow into in order to become more effective at attracting Advisors. Rep needs tend to be very broad and very diverse, which explains why we have such a diversity of broker/dealer styles meeting their needs. The difficult part for a firm is deciding whether they want to be generalists and meet a broad range of needs but remaining competitive with many other firms doing the same thing–or specialists meeting very specific needs but doing so very well.